The requirements for a Freddie Mac Small Balance Loan depend on the size of the loan. For loans under $1 million, additional requirements include:

• Loans must be in a Top Market or Standard Market
• Eligible borrowers include:
  • Previous Freddie Mac Multifamily borrowers
  • Borrowers taking out multiple loans simultaneously
  • Borrowers who will are likely to engage Freddie Mac for 2+ additional loans within the next 12 months
  • Borrowers with significant multifamily experience in the area (2+ years local multifamily experience and 2+ multifamily properties owned)
  • Loans that were initially approved for $1 million+ but were later constrained by property NOI or other factors
• Properties must underwrite a vacancy of at least 5% and an expense ratio of at least 30%
• 10-15 bps will be added loans in Top Markets, while 15-20 bps will be added to loans in Standard Markets
• Cash-out refinances for these loans are typically subject to stricter leverage requirements (LTV/DSCR)
• Seller/servicers may not market Small Balance Loans less than $1 million
• Freddie Mac generally requires 3 additional business days for commitments and inspections

For loans between $6 million and $7.5 million, additional requirements include:

• Loans must be in a Top or Standard Market
• No more than 100 units
• Borrowers must order additional third-party reports, including a survey report and a zoning report
• Minimum DSCR of 1.25x
• Borrowers must form a Single Asset Entity (SAE)

Advantages of Freddie Mac Small Balance Loans include:

• Up to 80% LTV allowance
• Streamlined application process
• Loans are non-recourse
• Interest-only options
• 30-year amortizations
• Variety of hybrid ARM and fixed-rate options available
• Loans are assumable with approval and 1% fee
• 60-120 day rate locks typically available

Eligible Property Types for the Freddie Mac SBL Program include multifamily and apartment properties with five or more units. This includes:

• Properties with commercial space that does not comprise more than 25% of the property’s gross income
• Independent living properties for seniors without resident services
• LIHTC (Low Income Housing Tax Credits), with land restrictions in the extended use period or the final 24 months of the initial restriction period (to qualify, eligible LIHTC properties must have 75 units or less and get special Freddie Mac approval)
• Other regulatory restrictions that limit income/rent (funds must be disbursed)
• Tax abatement properties
• Tenant-based housing voucher properties
• Buildings can have local rent subsidies for 10% or less units, as long as tenant eligibility certification is not required
• Cooperatives (must be located in New York City or Long Island)

In contrast, properties that are ineligible for the SBL program include:

• LIHTC properties with more than 24 months left on their Land Use Restrictive Agreement
• Tax-exempt bonds Interest Reduction Payments (IRPs)
• Properties with a greater than 50% concentration of student or military housing
• Properties with Section 8 contractors or other project-based HAP contracts
• Master lease HTC (Historic Tax Credit) properties

Sample Terms for the Freddie Mac Small Balance Loan in 2023: Eligible Properties include:

• Multifamily: 5+ unit market-rate multifamily properties. For loans larger than $6 million, properties with more than 100 units must be approved by Freddie Mac.
• Non-Contiguous Properties: Allowed if within same zip code and manageable as a single asset.
• Occupancy: 90% for past 90 days (exceptions down to 85% and down to 30 days for new construction). 85% occupancy may also apply to properties with 30+ units, or acquisitions with no history of serious crime, or that have been recently taken over by sophisticated management.
• Mixed Use: Available subject to no more than 40% non-residential income and no more than 40% of net rentable area.
• Affordable:
  • Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction Agreements (LURAs) that are in either the final 24 months of the initial compliance period or the extended use period (investor must have exited for property to be eligible).
  • Properties with tenant-based housing vouchers, and properties with local rent subsidies for 10% or fewer units where the subsidy is not contingent on the owner’s initial or ongoing certification of tenant eligibility are also eligible.
• Ineligible:
  • Seniors housing with residential services
  • Student housing (greater than 50% concentration)
  • Military housing (greater than 50% concentration)
  • Properties with Housing Assistance Program (HAP) Section 8 contracts and other project-based housing assistance payment contracts
  • LIHTC properties with LURAs in compliance years 1-12
  • Tax-exempt bonds Interest Reduction Payments (IRPs)
  • Historic Tax Credit (HTC) properties with a master lease structure

The SBL program offers limited apartment financing for non-contiguous subject properties through its Linked Property Program

Yes, the Freddie Mac SBL program allows financing for non-contiguous properties-- properties that are located at several different sites (i.e. “scattered sites”). However, to qualify, a “scattered sites” property must meet several important criteria. In order to maximize the chance of being approved for the Optigo Small Balance Loan program, borrowers should address all of these on the SBL Exception Form during their loan application/quote process. In some cases, Freddie Mac will be able to make a decision without detailed additional information, but this is generally not ideal. Some exceptions are allowed to the below criteria, but not many.

The most important thing that Freddie Mac wants to see is that all scattered or contiguous properties are operated as one. This means one rent roll and one profit and loss (P&L) statement for the property.

The following criteria must be met for non-contiguous and separate parcel properties:

• All buildings must have 5+ units
• Construction types for each building must be comparable
• Buildings all must be built within 10 years of each other
• All buildings must be within 1 mile of walking distance
• All properties must have the same signage and marketing
• All buildings/properties need to be owned under one SAE (single-asset entity)
• All buildings, structures, and parcels must be contained in one third-party report, which will list each address and will clearly indicate any differences between addresses
• All buildings must use the same maintenance team and building superintendent
• All properties must have expense ratios not varying by more than 5%
• Each unit type on scattered properties needs to have:
• Similar/comparable unit configurations (size, etc.)
• Similar interiors and appliances
• Reasonably similar rents for similar unit types

In addition to the requirements above, there is a $2 million minimum loan size that must be met. The subject properties must also be within 3 miles walking distance of at least one other subject property, and share similar or comparable characteristics such as rent amount, construction type, and unit configuration. Borrowers must be aware that all subject properties must be owned in or by a single asset entity.

Sample terms for the Freddie Mac Small Balance Loan in 2023 include:

• Multifamily: 5+ unit market-rate multifamily properties. For loans larger than $6 million, properties with more than 100 units must be approved by Freddie Mac.
• Non-Contiguous Properties: Allowed if within same zip code and manageable as a single asset.
• Occupancy: 90% for past 90 days (exceptions down to 85% and down to 30 days for new construction). 85% occupancy may also apply to properties with 30+ units, or acquisitions with no history of serious crime, or that have been recently taken over by sophisticated management.
• Mixed Use: Available subject to no more than 40% non-residential income and no more than 40% of net rentable area.
• Affordable: Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction Agreements (LURAs) that are in either the final 24 months of the initial compliance period or the extended use period (investor must have exited for property to be eligible). Properties with tenant-based housing vouchers, and properties with local rent subsidies for 10% or fewer units where the subsidy is not contingent on the owner’s initial or ongoing certification of tenant eligibility are also eligible.
• Ineligible: Seniors housing with residential services, student housing (greater than 50% concentration), military housing (greater than 50% concentration), properties with Housing Assistance Program (HAP) Section 8 contracts and other project-based housing assistance payment contracts, LIHTC properties with LURAs in compliance years 1-12, tax-exempt bonds Interest Reduction Payments (IRPs), Historic Tax Credit (HTC) properties with a master lease structure.

The advantages of a Freddie Mac Small Balance Loan include:

• Up to 80% LTV allowance
• Streamlined application process
• Loans are non-recourse
• Interest-only options
• 30-year amortizations
• Variety of hybrid ARM and fixed-rate options available
• Loans are assumable with approval and 1% fee
• 60-120 day rate locks typically available
• Flexible loan sizes, starting at just $750,000 and going up to $7.5 million
• Low interest rates, starting from just 4.51%
• Generous DSCR minimums, as low as 1.20x
• Partial and full-term interest-only loans offered
• Cash-out refinancing offered for eligible borrowers
• Multiple fixed rate term options (with up to 10-year terms) and hybrid ARM options (with 20-year terms)
• Soft step-down prepayment penalties allowed
• Financing is non-recourse (with individual exceptions for certain loans)

The Disadvantages of Freddie Mac Small Balance Loans:

Disadvantages of the Freddie Mac Small Balance Loan program include:

• Upfront application fees, typically ranging from 0.50% to 1.00% of the loan amount
• No financing available for seniors housing, student housing, or many types of affordable properties
• No construction financing available